At Your Service (Tax)...
Mar 22, 2012

Author: PersonalFN Content & Research Team

This year, the Finance Minister giveth, and the Finance Minister taketh away.
The Union Budget this year was a prime example of giving with one hand while taking with another.
Let’s see what we’re getting out of this budget, and what we’re losing.

(For a full write up on the Union Budget, read our Budget analysis)

Lower Direct Taxes

To bring the current tax regime closer to the proposed DTC, the distinction between men and women has been removed, and the basic tax slab has been raised to Rs. 2 lakhs.
So tax slabs now look like this:

Resident Indian under 60 years of age

Income	Tax
Up to 2,00,000	NIL
2,00,001 to 5,00,000	10%
5,00,001 to 10,00,000	20%
Above 10,00,000	30%

Resident Indian between 60 and 80 years of age

Income	Tax
Up to 2,50,000	NIL
2,50,001 to 5,00,000	10%
5,00,001 to 10,00,000	20%
Above 10,00,000	30%

Resident Indian above 80 years of age

Income	Tax
Up to 5,00,000	NIL
5,00,001 to 10,00,000	20%
Above 10,00,000	30%

With these changes, a female assessee earning 10 lakhs per annum, under 60 years of age, saves Rs. 21,630 in direct tax. A similar male assessee saves Rs. 22,660, and a senior citizen and very senior citizen saves Rs. 20,600.

(For tax saving investments, read our article for Easy Tax Saving Tips Under Section 80C)

But, what do we spend by way of increased service tax?

While earlier service tax was levied on a specified set of services and not on services not mentioned in the list, this has been turned on its head. Now we have to contend with what has been appropriately termed the ‘negative list’. If a service is in this list, service tax does not apply. If not, pay 12.36% in (increased) service tax.
What are these services?

Services by Government or local authorities
Services by the RBI
Foreign consulates and embassies in India
Agricultural Services
Toll charges
Gambling (yes, you read right)
Ads in local newspapers or on hoardings
Trading
Manufacturing of goods
Entertainment events such as concerts and amusement parks
Electricity (unless you use a generator, in which case its 12.36% as per the new normal)
Education (pre school to high school and also any education to pursue a qualification approved by law, which indicates CA, MBBS and such courses)
Residential Rent (living on rent in your residence means no tax, working in your rented office means you pay)
Public Transport (this does not include first class or AC coach seats on a train or any packaged tours)
Some financial transactions such as buying a deposit or giving a loan (except where interest is not charged, in which case service tax is applicable)
Goods transport (unless it’s by road transport or a courier service)
Funeral, burial, crematorium, hearse or mortuary services (the FMs way of separating death and taxes)

This tiny basket is what we won’t pay service tax on. Everything else has a princely 12.36% tacked on to it, not to mention excise duty, which has also been hiked. Also, it was officially stated that in due course, the tax net might be widened by removing some services from the negative list.

So there we are. No point complaining, like everything else the common man will get used to taxes. Keep an eye on your cash flows and things will be fine.

A point to note:

The Direct Tax revenue lost to the Government by expanding the tax slab is Rs. 4,500 crore.
The expected revenue generated for the Government by widening the tax net by way of service tax and excise duty hikes is Rs. 45,000 crore. That’s 10 times what it’s losing by giving your direct taxes back.

So if you were saving Rs. 22,660 by way of direct taxes, is it safe to assume that you will now spend 10 times this amount by way of increased service tax and excise duty? Probably not. But the expenditure will definitely go up. In times like these a personal budget can work wonders for your own financial discipline and to help you keep an eye on your finances.

(in times like these, there are certain key financial planning tips you must implement and follow immediately. Read our article titled 4 Crucial Financial Planning Tips for Salaried Individuals.)

To know what your investment strategy should be post this Budget, call your expert Financial Planner for a post Budget discussion based on your life goals.